What are the advantages and disadvantages of privatizing public companies?

Answer 1

Advantages from a society's perspective:

• Private companies usually increase efficiency and competitiveness of the business allowing for better utilization of Natural Resources.

Disadvantages from a society's perspective:

• Company that is less regulated and less transparent to the public may easier undertake decisions hurting the communities in which it operates, e.g. through elimination of labor unions and layoffs.

Advantages from a company's perspective:

• Private companies have fewer owners and fewer owners make communication between owners and the management team easier.
• Fewer stakeholders involved in management alleviate the pressure from the management team of being accused of mismanagement and lets them concentrate on longer term goals.
• No need for quarterly and annual public reporting and less regulation from the exchanges and government agencies, such as SEC in the US, can lower overhead costs.
• Less scrutiny from the public allows the management to execute socially unpopular decisions like layoffs.

Disadvantages from a company's perspective:

• Privatizing a public company frequently involves huge amount of debt that need to be first secured and than paid in due time.